What is an RRSP and How Does It Reduce Taxes?

An RRSP (Registered Retirement Savings Plan) is a registered retirement savings account that allows you to lower your taxes while saving for the future. You can open an RRSP at a bank, investment firm, or insurance company if you are a Canadian resident with earned income.

RRSP Contribution Limit for 2025

The maximum RRSP contribution limit for 2025 is $32,490 or 18% of your earned income from 2024 — whichever is lower.

Unused contribution room carries forward to future years.
Over-contributions up to $2,000 are allowed. Beyond that, penalties apply at 1% per month.

How RRSP Contributions Lower Your Taxes

Every dollar you contribute to an RRSP reduces your taxable income.
Example: If you earned $70,000 and contributed $10,000 to an RRSP, your taxable income is reduced to $60,000. That can save you thousands in taxes each year.

Withdrawing Funds

You can withdraw funds from your RRSP at any time. Withdrawn amounts are added to your income and taxed accordingly. There are also special programs, such as the Home Buyers’ Plan (HBP), which allow you to withdraw RRSP funds for a first home without immediate taxation.

Practical Example

One of my clients lost her job in late 2001. Instead of contributing $5,000 to her RRSP, she postponed the decision. As a result, she overpaid hundreds of dollars in taxes. A simple understanding of RRSP rules and consultation with a financial advisor could have prevented this loss.

Why Is This Important?

Many newcomers and long-time residents in Canada do not take full advantage of RRSP benefits. Without proper planning, it’s easy to miss opportunities, overpay taxes, or make mistakes when withdrawing funds.

Why You Should Contribute to an RRSP Now

2025 brings unique opportunities for Canadians to maximize RRSP benefits. Analysts expect the Bank of Canada to begin lowering interest rates in the coming months. This will mean more affordable loans, renewed economic activity, and stronger investment opportunities.

In these conditions, RRSP contributions create double value:

immediate tax savings for the 2025 tax year;
investment potential during a period of economic recovery.

For those planning to buy their first home, RRSPs offer additional support. Through the Home Buyers’ Plan, you can withdraw up to $35,000 from your RRSP for a down payment without immediate taxation. Combined with lower mortgage rates, this can significantly improve your ability to enter the housing market.

How I Can Help You with RRSP

With over 25 years of experience as a financial advisor in Canada, I’ve seen many people miss out on RRSP benefits simply because they didn’t know the rules or delayed making a decision. My role is to help you avoid these mistakes and build a strategy tailored to your goals.

Tax Optimization

I calculate the optimal contribution amount for your situation so that you achieve maximum tax savings this year.

Investment Strategy

I don’t just help you contribute — I help you allocate RRSP funds across investments (bonds, dividend stocks, funds) that match market conditions and your goals.

Support for First-Time Home Buyers

If you’re planning to use the Home Buyers’ Plan, I guide you through the process of contributing and withdrawing so you can maximize the benefit while avoiding tax pitfalls.

Long-Term Retirement Planning

RRSPs are just one piece of the bigger financial picture. I connect them with TFSA, CPP/OAS, and your investments so that you can clearly see your future income and take steps to increase it.

Now is the best time to act. An RRSP contribution in 2025 can reduce your taxes, boost your investments, and bring you closer to your financial goals.

Contact me for a personal consultation or sign up for my next seminar — and together we’ll build a strategy that works for you today and for years to come.

Translation of the article into Russian: RRSP и налоги в Канаде — как уменьшить налог

Michael Arbetov, CFP, FMA
Certified Financial Planner & Financial Advisor